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R.C.M. EXEC. GALLERY CORP. v. ROLS CAPITAL CO.

September 25, 1995

R.C.M. EXECUTIVE GALLERY CORP., CARMEN MARTINEZ AND ROGER MOJER, Plaintiffs, against ROLS CAPITAL CO., MARVIN GOLDMAN, PAUL GOLDMAN, JEROME GOLDMAN and ALEX REIZNER, Defendants.


The opinion of the court was delivered by: KOELTL

 JOHN G. KOELTL, District Judge:

 This case arises out of a loan made to the plaintiffs by Rols Capital Co. ("Rols partnership"), a New Jersey partnership that, following the plaintiffs' repayment of the loan, filed for bankruptcy in June 1991. Alleging that the Rols partnership charged them a usurious rate of interest, the plaintiffs have sued various individual defendants along with J.K. Funding, which is a New Jersey corporation doing business under the name Rols Capital Co. ("J.K. Funding" or "Rols corporation"). J.K. Funding purchased the assets of the Rols partnership pursuant to an asset purchase agreement and as part of the bankruptcy reorganization plan of the Rols partnership. The plaintiffs seek to hold J.K. Funding liable for their various claims under a theory of successor liability.

 J.K. Funding has moved for summary judgment under Fed. R. Civ. P. 56, arguing that it cannot be held liable as a successor to the Rols partnership. J.K. Funding also has moved, in the alternative, to dismiss the plaintiffs' claims against it under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), pursuant to Fed. R. Civ. P. 12(b)(6), arguing that the plaintiffs have failed to state a claim upon which relief can be granted. For the reasons given below, J.K. Funding's motion for summary judgment is denied, and its motion to dismiss the RICO claims is granted.

 I.

 The following facts are undisputed for purposes of this motion. In January 1988, the plaintiffs, R.C.M. Executive Gallery, Corp. ("R.C.M."), Carmen Martinez ("Martinez") and Roger Mojer ("Mojer"), obtained a commercial loan of $ 55,000 from the Rols partnership in connection with their purchase of a bar and restaurant. R.C.M., a minority-owned business, is a New York corporation, Martinez is the president of R.C.M., and Mojer is Martinez's husband. As collateral for the loan, Martinez executed a mortgage on her home, Martinez and Mojer executed individual guarantees, and Martinez and Mojer executed a confession of judgment.

 The plaintiffs repaid the loan in full, making their last payment on January 25, 1993. The plaintiffs then sued the defendants in December, 1993, alleging that the Rols partnership charged them a usurious rate of interest. They have asserted claims for, among other things, misrepresentation, fraud, and violations of RICO, federal and state usury laws, and federal lending laws.

 All of the individual defendants were associated with the Rols partnership: Marvin Goldman was the president and owner, Paul Goldman was an officer and an owner; Alex Reizner was an officer; and Jerome Goldman was an attorney employed by and retained by the Rols partnership. J.K. Funding purchased the assets of the Rols partnership in April 1993 pursuant to the bankruptcy court order confirming the Rols partnership's plan of reorganization and an asset purchase agreement. These assets primarily consisted of outstanding loans. The plaintiffs allege that they never received notice of the bankruptcy proceeding and paid off their loan without knowing that the Rols partnership had filed a petition. (See Response to Rule 3(g) statement at P 22.)

 Jerry Kaplan ("Kaplan"), a former partner of the Rols partnership, currently owns J.K. Funding. Kaplan sold his interest in the Rols partnership on or about July 1, 1987, before the loan that is at issue in this case was made to the plaintiffs. Kaplan registered the name "Rols Capital Co." with the New Jersey Secretary of State, as a corporation, to facilitate his collection of the outstanding loans. Kaplan operates the New Jersey corporation J.K. Funding as "J.K. Funding, Inc. d/b/a Rols Capital Co."

 J.K. Funding argues that as a matter of law it cannot be held liable for any wrongdoing on the part of the Rols partnership and that it is therefore entitled to summary judgment. *fn1" It argues that because it purchased the assets of the Rols partnership in the context of a bankruptcy reorganization plan and that under the terms of this plan J.K. Funding did not assume liability for claims like the plaintiffs', it cannot be held for such claims as a successor to the Rols partnership. *fn2" J.K. Funding also argues that it cannot be held liable because it is a completely separate entity from the Rols partnership and because it had absolutely no involvement in the loan the Rols partnership made to the plaintiffs, which had been paid off before J.K. Funding acquired the Rols partnership assets. J.K. Funding also argues, in the alternative, that the plaintiffs' RICO claims should be dismissed with respect to it under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted.

 II.

 The Court first considers the defendant's motion for summary judgment. J.K. Funding argues that it is entitled to summary judgment because it is a separate and distinct entity from the Rols partnership and cannot be held liable for the plaintiffs' claims under the law of successor liability. Because there are factual issues that preclude a determination of whether the defendant is liable as a successor to the Rols partnership, the defendant's summary judgment motion is denied.

 Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Gallo v. Prudential Residential Servs. Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962)); see also Gallo, 22 F.3d at 1223. Summary judgment is improper if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir. 1994).

 The plaintiffs have asserted both state and federal claims against the defendant. At oral argument, the parties agreed that New Jersey successor liability law applies to both the state and federal claims; *fn3" however, the application of state law to the plaintiff's federal claims on this issue is questionable. Neither party has cited any cases supporting the use of state law to determine successor liability for federal causes of action. Many courts have applied federal law to the issue of successor liability for various federal causes of action. See, e.g., Chicago Truck Drivers, Helpers, and Warehouse Workers Union (Independent) Pension Fund v. Tasemkin, Inc., 59 F.3d 48, 49 (7th Cir. 1995) (applying federal common law of successorship to ERISA); Steinbach v. Hubbard, 51 F.3d 843, 845 (9th Cir. 1995) (stating that successor liability as applied to federal statutes is governed by federal law); E.E.O.C. v. G-K-G, Inc., 39 F.3d 740, 747 (7th Cir. 1994) (applying federal common law doctrine of successor liability to ADEA claim); Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 212 (3d Cir. 1994) (noting that the majority of courts have found that federal law applies to successor liability under CERCLA); New York v. N. Storonske Cooperage Co., Inc., 174 Bankr. 366 (N.D.N.Y. 1994) (noting that the courts of appeals disagree about whether to apply state or federal common law to successor liability under CERCLA).

 In any case, it is unnecessary to resolve this issue at this time because, with the exception of the strict products liability context, New Jersey follows a general rule of successor liability that courts commonly apply to both state and federal claims. See Luxliner P.L. Export, Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73 (3d Cir. 1993) (holding that outside the strict products liability context, New Jersey courts follow traditional successorship doctrine); Glynwed, Inc. v. Plastimatic, Inc., 869 F. Supp. 265, 270 (same); Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F. Supp. 834, 838 (S.D.N.Y. 1977) (applying traditional successorship doctrine to claims based on federal securities laws); N. Storonske Cooperage Co., 174 Bankr. at 375 (refraining from deciding which law applies to federal claims because state and federal rules are parallel). *fn4"

 Although J.K. Funding argues that established successorship principles do not apply to the plaintiffs' RICO claims against it, it has offered nothing to support this argument. The few courts to confront this issue have held that the principles of successor liability apply to RICO claims. See, e.g., Continental Grain Co. v. Pullman Standard, Inc., 690 F. Supp. 628 (N.D. Ill. 1988); Ghouth v. Conticommodity Servs., Inc., 642 F. Supp. 1325, 1328 (N.D. Ill. 1986) (recognizing the theory in the RICO context, but finding the pleading deficient); Rodriguez v. Banco Cent., 777 F. Supp. 1043, 1065 (D.P.R.), aff'd, 990 F.2d 7 (1993). Only the Rodriguez case offers any discussion about the appropriateness of successorship principles in RICO actions. In its decision, the court recognized the viability of successor liability in the RICO context but declined to impose liability for RICO offenses on a successor bank on the facts of that case. The court noted that "if there is a showing of knowledge, constructive or actual, by the purchaser at the time of the transaction, the equation is altered and liability might lie." 777 F. Supp. at 1065. Because the defendant is unable to point to any provision in the RICO statute or to any other authority to support its assertion that successor liability cannot apply to RICO claims, the Court finds that successor liability can apply to all of the plaintiffs' claims against the defendant J.K. Funding, including the RICO claims.

 As a general rule, a successor corporation is not responsible for the debts and liabilities of its predecessor. Ramirez v. Amsted Indus., Inc., 86 N.J. 332, 340, 431 A.2d 811, 815 (1981); Fletcher Cyc. Corps. § 7122 (Perm. ed. & Supp. 1994). *fn5" However, there are four established exceptions to this nonliability rule. A purchasing company will be liable for the obligations of its predecessor if (1) there is an express or implied agreement to assume the other company's debts and obligations; (2) the transaction was fraudulent; (3) there was a de facto consolidation or merger of the companies; or (4) the purchasing company was a mere continuation of the selling company. Ramirez, 86 N.J. at 340, 431 A.2d at 815; see Fletcher Cyc. Corp. § 7122 (Perm. ed. & Supp. 1994). *fn6" The plaintiffs allege that J.K. Funding's acquisition of the assets of the Rols partnership falls within these exceptions.

 The defendant argues that the theory of successor liability does not apply in this case because the defendant is a separate and distinct entity that had nothing to do with the loan at issue. This argument reveals a complete misunderstanding of the very principle of successor liability, which is fundamentally a form of secondary, vicarious liability imposed upon an innocent party. As the court in Wilkerson v. C.O. Porter Mach. Co., 237 N.J. Super. 282, 567 A.2d 598 (N.J. Super. Ct. Law Div. 1989), explained, a plaintiff alleging successor liability "does not allege that the purchaser of the assets did, or failed to do, anything that contributed to his injury." 237 N.J. Super. at 300-01; 567 A.2d at 607-08. Instead, the court stated, a defendant's liability depends on the relationship between the defendant and the bankrupt.

 
In every form of vicarious liability, the blameworthy behavior or status of the primarily liable person must be established as a prerequisite to recovery against the secondarily liable person. However, there are several circumstances where the primarily liable defendant is insulated in some way from judgment (even by discharge in ...

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